The commercial construction market in Houston is slowing. The oversupply of quality sublease space continues to affect the office market; mergers and acquisitions among energy companies continue to affect the industrial market. Both sectors reported multiple starts of build-to-suit or single-tenant projects during the first half of 2017 while 100% spec projects are nonexistent in the office market and slowing in the industrial market.

Having completed just over 2.0 million square feet during the first half of the year, the under-construction office market in Houston has reached the lowest square footage total in recent years, with only 12 buildings totaling 2.1 million square feet currently underway. The largest, Capitol Tower at 754,000 square feet, broke ground during second quarter in the Central Business District after securing a 210,000-square-foot commitment from Bank of America.

In addition, three build-to-suit buildings also broke ground during 2017 in Springwoods Village, the 60-acre mixed-use development in north Houston. The new buildings include one with 303,127 square feet for Houston-based American Bureau of Shipping and two buildings totaling 378,000 square feet for HP; completions are scheduled for mid- to late-2018 with Skanska’s building taking two years to be completed in 2019.

By comparison, the under-construction total square footage was almost twice that square footage a year ago in Second Quarter 2016, with 3.9 million square feet in 15 properties. But only two years ago, that total was 11.2 million square feet or 36 properties, the largest being Phillips 66’s headquarters’ building in Westchase with 1.2 million square feet along with 609 Main and various projects in both the Energy Corridor and The Woodlands areas.

Of the spec projects currently under construction, more than half will be completed this year. All current projects except one have reported some preleasing and collectively are 54.0% preleased; developers are holding back on starts without substantial preleasing. Yet companies are searching and committing to top-quality projects as evidenced by the leases from HP and American Bureau of Shipping along with the list of companies moving into 609 Main. Please see accompanying chart for detail on each under-construction project.

Selected Office Buildings 20,000 SF+ Under Construction
Market Property Name Address Bldg Size Preleased Est Completion
CBD Capitol Tower 800 Capitol St 754,000 37.3% 4/1/2019
North/The Woodlands/Conroe HP Campus (2 bldgs) 23019 North Freeway 378,000 100.0% 8/1/2018
North/The Woodlands/Conroe American Bureau of Shipping (Springwoods) Lake Plaza Dr 326,800 100.0% 12/1/2018
Inner Loop The Kirby Collection 3200 Kirby Dr 188,696 2.1% 9/30/2017
Uptown The Post Oak 1600 West Loop S 140,000 0.0% 1/1/2018
Northeast 250 Assay St (Generation Park) 250 Assay St 86,523 79.7% 7/1/2017
West Members Choice Credit Union 18211 Katy Fwy 86,255 55.0% 10/1/2017
West Grandway West Bldg 4 2322 W Grand Pkwy N 72,045 50.8% 1/1/2018
North/The Woodlands/Conroe Wind Energy Office 8917 Louetta Rd 56,113 57.2% 11/15/2017
West Memorial Green Bldg 2 12525 Memorial Dr 25,000 14.7% 9/1/2017
West Memorial Green Bldg 1 12525 Memorial Dr 25,000 30.9% 9/1/2017
Total Tracked Under-Construction: 12 bldgs 2,138,432 54.0%
Source:  Commercial Gateway


Industrial projects continue to be announced, but similar to office, the largest are build-to-suit or single-tenant. Amazon’s fulfillment center in Katy at 1 million square feet was the largest project to break ground during the first half of the year. FedEx’s 1.1 million square-foot facility in Cypress is currently the largest under construction and should be complete and open in August. The largest spec building to break ground is Cedar Port’s 501,020 square-foot building, which follows the completion of the first two buildings totaling almost a million square feet in the project leased and occupied by Ikea.

Construction activity has slowed when compared to previous years, with 37 buildings totaling almost 5.2 million square feet currently underway, but totals for those previous time frames included Daiken’s 4 million-square-foot facility. The mid-year 2017 total is roughly 50% of the total square footage,10.1 million and 60 buildings, reported under construction two years ago and slightly under 50% reported just one year ago in Second Quarter 2016 with 10.7 million square feet in 62 buildings.

The bulk of the square footage is located in the North/Northwest, with 2.4 million square feet or 46.7% of the total in 11 buildings. The Southeast has six projects totaling 1.1 million square feet or 20.3% followed by the Northeast with two projects totaling 866,200 square feet or 16.7% of the total. Overall, the under-construction market is 75.0% preleased. Please see graph for under-construction project detail.

With 84.3% of the total square footage under construction, 11 warehouse-distribution buildings with almost 4.4 million square feet represent the bulk of projects underway as e-commerce giants, large retailers and logistics firms set up distribution facilities in Houston. Overall, Amazon has just under 2 million square feet under construction and published reports just announced another 110,000 square feet for its Amazon Fresh location in Fallbrook Pines. Another published report has Kuraray America, a global supplier of chemical, fiber and resin products, having preleased 465,851 square feet in two buildings of Bayport Logistics Park, a 185-acre complex being developed by Avera Companies. DHL Supply Chain is adding another building, this one 222,000 square feet, to its two buildings on State Highway 225.

The first half of 2017 has seen some large occupancies with more to come. In addition to Ikea’s move in the Southeast market, Homelegance occupied its 175,000-square-foot building in Beltway Southwest Business Park along with Maintenance Supply occupying its new 209,000-square-foot headquarter’s building in the same park. This trend could continue with demand in the distribution market rising as the employment picture strengthens and population increases.

Selected Industrial Buildings 50,000 SF+ Under Construction
Market Property Name Address Bldg Size Preleased Est Completion
Northwest FedEx Ground 8787 W Grand Pkwy N 1,100,000 100.0% 8/10/2017
Northwest Amazon Distribution Center Hwy 90/Woods Road 1,000,000 100.0% TBD
Northeast Amazon Distribution Center 10550 Ella Blvd 855,000 100.0% 8/1/2017
Southeast Cedar Port Distribution III 4838 Borusan Rd 501,020 0.0% 8/1/2018
Southeast Carson Bayport 3 Bldg I-2 4121 Malone Dr 274,417 0.0% 7/1/2017
South FloWorks International 3730 S Main St 225,000 100.0% 7/1/2017
Southeast 1706 S 16th St 1706 S 16th St 157,200 0.0% 7/1/2017
Northwest 12527 Taylor Rd Bldg 1-5 12527 Taylor Rd 130,100 0.0% 11/1/2017
Southwest Beltway Southwest Business Park Bldg 4 14453 Hillcroft St 112,500 0.0% 7/1/2017
Northwest Pepperl+Fuchs Solutions Engineering Center 502 Cane Island Pkwy 110,000 100.0% 7/30/2017
Southwest Lonza Houston Inc. Facility 14905 Kirby Dr 100,000 100.0% 10/1/2017
Southwest Park 8Ninety Bldg 7 Highway 90A 95,200 0.0% 8/1/2017
Southeast Carson Commerce Center 5 Bldg 1 1321 E Pasadena Fwy 78,490 0.0% 8/1/2017
Southwest Tool-Flo Manufacturing 14745 Kirby Dr 75,000 100.0% TBD
North ICOTEX 3479 Pollok Dr 71,750 100.0% 7/1/2017
Southwest 9390 Kirby Dr 9390 Kirby Dr 64,260 0.0% 11/15/2017
Total Tracked Under-Construction:  37 buildings 5,183,220 69.0%
Source:  Commercial Gateway